For most people, obtaining economic and social opportunities depends on access to labour-markets. Effective and flexible labour-markets allow economies to cope more easily with ageing and the disruptions of innovation and globalisation. Positive outcomes include the ability for women and men to reconcile work and family life adequately; young people’s ability to make a smooth transition from education to work; and robust labour-market integration for immigrants, allowing them to become active contributors to the economy and the welfare state.
Policymakers must strike a balance between preventive and corrective strategies. If a country fails to implement preventive measures, it must later make policy corrections on an ex post basis, which often entail very high costs.
A survey of 1,058 experts evaluates both the need for reform and actual reform performance, as measured by the frequency and quality of reform, within the EU-28 countries. The survey covers five areas of social inclusion, including poverty prevention, education, labour-market access, social cohesion and non-discrimination, and health. While there is significant variation across member states, experts perceive the most urgent need for reform in the area of improving access to labour-markets; however, reform performance here is middling at best.
One cannot exaggerate the importance of smooth labour-market performance as a precondition for inclusive growth, in Europe and elsewhere. For the vast majority of people, economic and social opportunities depend on labour-market access. The availability of good jobs allows people to participate in the productive economy and o ers opportunities to take advantage of upward social mobility. The differential opportunities between high- and low-skilled work are an important determinant of inequality, distribution and cohesion in society. When labour-markets are dysfunctional and cannot offer jobs to those who desperately need them, as in the European countries most a ected by the economic and nancial crisis, a whole generation might be lost and radicalised, feeling robbed of economic opportunities. However, the challenges for European labour-markets are huge even independently of the crisis. Labour-markets must cope with the disruptions and structural change triggered by innovation and globalisation. Given the ageing of societies, they must integrate and provide more jobs for older people. They must help to reconcile work and family life for women and men, without making motherhood a career disadvantage for women. They must offer young generations a smooth transition from education to work without producing high levels of youth unemployment. They should smoothly integrate foreign immigrants, allowing them to become active contributors to the economy and the welfare state instead of remaining a burden.
An overarching theme of this essay is that policy should strike a balance between preventive and corrective labour-market policies and welfare-state strategies. The provision of education from kindergarten all the way through vocational training and university education reduces economic risk, and is a key investment with regard to facilitating upward social mobility. Reforms should also focus more on employment growth and crisis resilience within the economy at large. Firms are effectively insuring workers by providing secure employment and earnings over the economic cycle. The better they are able to absorb the risk of fluctuating sales and earnings, the lower is the volume of risk that remains to be insured by the welfare state. What a country fails to achieve in preventive measures, it must correct on an ex post basis, generally with very high costs. Preventive measures are e ectively an investment in the sustainability of the welfare state.
It is probably safe to predict that the skill bias in employment and wages increases the strain on national redistribution mechanisms and social safety nets. In order to contain uncontrolled growth in welfare spending, and to prevent rising tax burdens from sti ing economic performance, the welfare state itself needs preventive reforms that encourage labour-market participation and boost incentives for lifelong learning. To be compatible with the needs of an innovative economy, the welfare state should shift towards the flexicurity paradigm which rests on three pillars. First, unemployment insurance and welfare bene ts for the long-term unemployed protect workers against bad outcomes, and makes them more ready to accept the higher employment risk associated with innovative and globally exposed industries. Second, moderately low levels of job protection offer rms the exibility to terminate unproductive jobs that lack a future. Instead of locking up employment in unproductive sectors, such flexibility provides the ability to reallocate labour to more productive and dynamic rms. Third, active labour-market policy can provide carrots and sticks. More active monitoring may complement financial incentives in intensifying unemployed individuals’ job searches, which in turn speeds up the transition back to work. In particular, policy should provide for training and requalification programmes to boost employability and raise individuals’ chances of finding productive employment again. Every move from unemployment into work raises the number of taxpayers and shrinks the number of welfare recipients. Moving back to employment thus increases tax revenue and reduces social spending at the same time. Labour-market participation is in this sense crucial to the welfare state’s financial sustainability.
If the EU wants to offer its citizens better jobs and more opportunities, and if it wants the vision of a socially inclusive Europe to become reality (see EC, 2015 and EC, 2014), it needs courageous reform on the part of member states. How can such reform happen? Benchmarking and the dissemination of successful reform experiences in other countries may encourage mutual learning and policy innovations. Based on interviews with numerous heads of government, De Geus, Thode and Weidenfeld (2016) have collected ex- amples of far-reaching reforms in Europe, and have extracted success fac- tors that can improve the chances of positive reform outcomes. Similarly, the OECD’s Making Reform Happen report identi es typical stumbling blocks and successful strategies associated with reform implementation (OECD, 2010). Clearly, existing cultures of consensus and con ict, ideological divi- sions, and large interest groups’ relative ability to compromise can all sub- stantially a ect the probability of successful reform. Opportunities for broad reforms tend to increase in times of economic or social difficulty, as in some of the euro zone’s crisis-struck countries, or when strong catch-up growth improves future prospects and makes reforms appear more attractive, as has been the case in some eastern European member states. The prospects for successful reform tend to improve if all a ected interest groups are actively included in the reform process, and if costs and bene ts are broadly and evenly distributed. Supporting the arguments for reform with research-derived facts, actively informing citizens about bene ts and costs, and timing reforms so they fall immediately after elections can improve the feasibility of reforms implemented within the democratic process. Finally, comparative analysis such as the Social Justice Index and the Reform Barometercan be useful instruments to facilitate policy innovations in the EU-28.